Stocks surge, day 2

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NEW YORK (CNNMoney.com) -- Stocks rallied Thursday afternoon, gaining for the second session in a row, as investors welcomed the White House's plan to help troubled homeowners and geared up for Friday's jobs report and next week's Fed policy meeting.

The Dow Jones industrial average (Charts) added 1.2 percent. The broader S&P 500 (Charts) index gained 1.3 percent. The tech-fueled Nasdaq (Charts) composite climbed 1.4 percent.

Stocks had drifted higher during the session, but gains were limited as investors sorted through mixed retail news, including a warning from Target, and a report showing that the pace of foreclosures filed hit a record high during the third quarter.

However, the stock advance found its second wind in the last hour of trade, as investors digested the Bush Administration's proposal to help troubled homeowners. Among other developments, the plan will offer a five-year freeze on interest rates for borrowers who are up-to-date in their payments. The deal was negotiated between the Treasury Dept., mortgage lenders and banks. (Full story).

Treasury prices tumbled, raising the corresponding yields, as investors pulled money out of safe haven investments and put it into stocks. Oil and gold prices jumped.

Stocks rallied Wednesday, with the Dow jumping nearly 200 points, on a mix of strong economic news and bets that the Federal Reserve will cut interest rates again at its policy meeting next week.

That sentiment continued to lift stocks Thursday, along with relief about the government's subprime proposal and anticipation about Friday's big monthly jobs report.

Employers are expected to have added 70,000 jobs to their payrolls last month after adding 166,000 jobs in October. However, a measure of private sector employment released on Wednesday showed stronger-than-expected growth, suggesting that Friday's report could come in well above estimates.

And a very strong report would likely be welcomed by Wall Street, even if it limits the chances of the Federal Reserve cutting rates by as much as a half-percentage point, in favor of a quarter-percentage point.

"Some months people want to see a weaker payrolls number, because it makes the Fed more likely to act, but this time I think they want to see a very strong number," Saluzzi said. "I think they want to see that there isn't going to be a recession, or if there is a recession, it's not going to be so bad."

The unemployment rate, generated by a separate survey than the payrolls component, is expected to have risen to 4.8 percent from 4.7 percent in October. Average hourly earnings, the report's inflation component, is expected to have risen 0.3 percent after rising 0.2 percent in the previous month.

Investors also eyed November sales reports from many of the nation's chain stores. Many discount retailers reported strong results, but specialty clothing chains struggled, making for a mixed start to the critical holiday sales period.

Among the standouts, Wal-Mart (Charts, Fortune 500) reported sales at the high end of its guidance. Costco (Charts, Fortune 500) saw strong gains as well. Macy's (Charts, Fortune 500) and Nordstrom (Charts, Fortune 500) reported strong November sales, but warned that December sales will fall.

Target (Charts, Fortune 500) reported November sales and a December forecast that disappointed analysts, prompting a downgrade from Wachovia Capital Markets.

Bank and homebuilder shares jumped on the Bush Administration plan, including JP Morgan (Charts, Fortune 500), Citigroup (Charts, Fortune 500), Merrill Lynch (Charts, Fortune 500) and Morgan Stanley (Charts, Fortune 500). Countrywide Financial (Charts, Fortune 500), the largest mortgage lender in the country, rallied 16 percent.

Gainers in the homebuilder sector included DR Horton (Charts, Fortune 500), Lennar (Charts, Fortune 500), Centex (Charts, Fortune 500) and Toll Brothers (Charts, Fortune 500). Toll Brother reported its first ever quarterly loss. However, the loss was narrower than what analysts were expecting and investors sent the stock higher.

Shares of chipmaker Intel (Charts, Fortune 500) rose 2.8 percent on an analyst note that said demand for notebook computer components appears "a bit stronger" than expected, AP reported.

Other big tech stock gainers included Apple (Charts, Fortune 500) and Dell (Charts, Fortune 500).

Market breadth was positive. On the New York Stock Exchange, winners beat losers by almost four to one on volume of 1.37 billion shares. On the Nasdaq, advancers topped decliners by more than seven to three as 2 billion shares changed hands.

Also in focus: the Bank of England opted to cut interest rates by a quarter-percentage point to 5.50 percent, providing some encouragement to U.S. investors ahead of next week's Fed meeting. The European Central Bank held rates steady.

U.S. central bankers meeting Tuesday are widely expected to cut the fed funds rate, a key short-term interest rate, by at least a quarter-percentage point and possibly as much as a half-percentage point. Federal Reserve Chairman Ben Bernanke and other Fed officials have hinted at as much in recent weeks, and the action in the bond market lately would suggest as much.

Treasury prices fell Thursday, boosting the yield on the 10-year to 4.00 percent from 3.94 percent late Wednesday. Treasury prices and yields move in opposite directions. A recent rally in Treasury prices has left the 10-year note yield now more than 50 basis points below the fed funds target rate of 4.50 percent. There are 100 basis points in one percentage point.

The number of Americans filing new claims for unemployment fell last week by more than expected. However, the report was overshadowed a bit ahead of Friday's bigger monthly report.

In currency trading, the dollar gained versus the yen and fell versus the euro.

U.S. light crude oil for January delivery rose $2.74 to settle at $90.23 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery rose $3.40 to settle at $807.10 an ounce.

-- CNNMoney.com staff writers David Ellis and Ben Rooney contributed to this report.